<PAGE> 1
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SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACTS OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD
FROM TO .
--- ---
COMMISSION FILE NUMBER 0-28121
---------------
RETEK INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE MIDWEST PLAZA 51-0392671
(State or Other Jurisdiction of 801 Nicollet Mall, 11th Floor (I.R.S. Employer
Incorporation or Organization) Minneapolis, MN 55402 Identification No.)
(612) 630-5700
</TABLE>
(Address, including zip code, and telephone number,
including area code, of Registrant's Principal Executive
Offices)
----------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of November 1, 2000, the number of shares of the Registrant's common
stock outstanding was 47,842,655.
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RETEK INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
PART I -- FINANCIAL INFORMATION........................................... 3
ITEM 1: Financial Statements.............................................. 3
Consolidated Balance Sheet at September 30, 2000 and
December 31, 1999....................................... 3
Consolidated Statement of Income for the nine months ended
September 30, 2000 and 1999............................. 4
Consolidated Statement of Cash Flows for the nine months
ended September 30, 2000 and 1999....................... 5
Consolidated Statement of Changes in Stockholders' Equity and
Comprehensive Income for the nine months ended
September 30, 2000...................................... 6
Notes to the Consolidated Financial Statements................ 7
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 11
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk........ 23
PART II -- OTHER INFORMATION.............................................. 23
ITEM 1: Legal Proceedings................................................. 23
ITEM 2: Changes in Securities and Uses of Proceeds........................ 23
ITEM 3: Defaults Upon Senior Securities................................... 24
ITEM 4: Submission of Matters to a Vote of Security Holders............... 24
ITEM 5: Other Information................................................. 25
ITEM 6: Exhibits and Reports on Form 8-K.................................. 25
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements in
"Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Item 3 -- Quantitative and Qualitative Disclosures
About Market Risk," and elsewhere. These statements relate to future events or
our future financial performance. In some cases, forward-looking statements may
be identified by terminology such as "may," "will," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential,"
"continue" or the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this Quarterly Report on Form 10-Q to conform these statements to actual
future results.
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RETEK INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 30,463 $ 83,680
Investments...................................... 10,964 --
Accounts receivable, net......................... 24,792 24,383
Deferred income taxes............................ 1,589 1,612
Other current assets............................. 14,972 5,560
--------- --------
Total current assets.......................... 82,780 115,235
Investments........................................ 6,197 --
Deferred income taxes.............................. 42,031 21,716
Property and equipment, net........................ 27,144 8,291
Intangible assets, net............................. 30,434 8,958
Other assets....................................... 55 33
--------- --------
$ 188,641 $154,233
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 10,236 $ 5,946
Accrued liabilities.............................. 4,655 3,030
Deferred revenue................................. 42,526 5,883
Note payable..................................... 533 --
Payable to HNC Software Inc...................... 596 15,399
--------- --------
Total current liabilities..................... 58,546 30,258
Deferred revenue, net of current portion........... 5,873 --
--------- --------
Total liabilities............................. 64,419 30,258
Stockholders' equity:
Preferred stock, $0.01 par value -- 5,000 shares
authorized; no shares issued and outstanding.. -- --
Common stock, $0.01 par value -- 150,000 shares
authorized, 47,656 shares and 46,503 shares
issued and outstanding at September 30,
2000 and December 31, 1999, respectively.... 477 465
Paid-in capital.................................... 170,624 140,089
Deferred stock-based compensation.................. (13,260) (19,978)
Accumulated other comprehensive loss............... (1,593) (582)
(Accumulated deficit) retained earnings............ (32,026) 3,981
--------- --------
Total stockholders' equity.................... 124,222 123,975
--------- --------
Total liabilities and stockholders' equity......... $ 188,641 $154,233
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
RETEK INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue:
License and maintenance....................... $ 17,291 $14,078 $ 35,229 $41,392
Services and other............................ 9,071 5,991 24,686 16,367
--------- ------- --------- -------
Total revenue.............................. 26,362 20,069 59,915 57,759
--------- ------- --------- -------
Cost of revenue:
License and maintenance (1) (2)............... 6,942 821 16,415 4,079
Services and other (1)........................ 6,605 4,180 17,992 11,642
--------- ------- --------- -------
Total cost of revenue...................... 13,547 5,001 34,407 15,721
--------- ------- --------- -------
Gross profit............................... 12,815 15,068 25,508 42,038
Operating expenses:
Research and development (1).................. 9,404 5,012 26,198 14,749
Sales and marketing (1)....................... 9,923 4,574 28,236 12,948
General and administrative (1)................ 2,876 1,525 7,894 4,076
Amortization of stock-based compensation...... 2,837 -- 8,261 --
Acquired in-process research and
development................................. -- -- 4,000 --
Acquisition related amortization of
intangibles................................. 2,398 264 4,940 780
--------- ------- --------- -------
Total operating expenses................... 27,438 11,375 79,529 32,553
--------- ------- --------- -------
Operating (loss) income......................... (14,623) 3,693 (54,021) 9,485
Other income, net............................... 75 (344) 1,526 (330)
--------- ------- --------- --------
(Loss) income before income tax (benefit)
provision................................... (14,548) 3,349 (52,495) 9,155
Income tax (benefit) provision.................. (5,041) 1,716 (16,488) 4,062
--------- ------- --------- -------
Net (loss) income............................. $ (9,507) $ 1,663 $ (36,007) $ 5,093
======== ====== ======== ======
Basic and diluted net loss per common share $ (0.20) $ (0.77)
======== ========
Weighted average shares used in computing
basic and diluted net loss per common share... 47,441 46,995
========= =========
Pro forma basic net income per common share..... $ 0.04 $ 0.13
======= =======
Weighted average shares used in computing pro
forma basic net income per common share....... 40,000 40,000
======= =======
(1) Excludes non-cash, amortization of
stock-based compensation as follows:
Cost of revenue:
License and maintenance........................ 173 -- 504 --
Services and other............................. 409 -- 1,190 --
Operating expenses:
Research and development....................... 1,347 -- 3,924 --
Sales and marketing............................ 624 -- 1,817 --
General and administrative..................... 284 -- 826 --
--------- ------- --------- -------
Total amortization of stock-based
Compensation............................. $ 2,837 $ -- $ 8,261 $ --
========= ======= ========= =======
(2) Excludes non-cash, acquisition related
amortization of intangibles..................... $ 903 $ 149 $ 2,177 $ 684
========= ======= ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
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RETEK INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
--------------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................... $(36,007) $ 5,093
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Provision for doubtful accounts..................... 1,847 1,899
Depreciation and amortization expense............... 8,529 2,782
Amortization of stock-based compensation............ 8,261 --
Acquired in-process research and development........ 4,000 --
Deferred tax benefit................................ (22,153) 318
Tax benefit from stock option transactions.......... 5,666 190
Changes in assets and liabilities, excluding
business acquisitions:
Accounts receivable.............................. (2,256) (10,430)
Other assets..................................... (9,389) 171
Accounts payable................................. 4,069 1,080
Accrued liabilities.............................. 1,625 (483)
Deferred revenue................................. 41,904 (439)
-------- --------
Net cash provided by operating activities...... 6,096 181
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash purchased in business acquisition.............. 166 --
Cash paid for business acquisition.................. (18,694) --
Net purchases of investments........................ (17,161) --
Acquisitions of property and equipment.............. (12,032) (3,656)
-------- --------
Net cash used in investing activities.......... (47,721) (3,656)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock...... 5,635 --
Repayment of debt................................... (1,411) --
Borrowings from HNC Software Inc.................... 596 46,892
Repayments to HNC Software Inc...................... (15,399) (43,331)
-------- --------
Net cash (used in) provided by financing
activities................................... (10,579) 3,561
-------- --------
Effect of exchange rate changes on cash............. (1,013) (2)
-------- --------
Net (decrease) increase in cash and cash
equivalents....................................... (53,217) 84
Cash and cash equivalents at beginning of
period............................................ 83,680 415
-------- --------
Cash and cash equivalents at end of period.......... $ 30,463 $ 499
======== ========
SIGNIFICANT NON-CASH FINANCING ACTIVITIES:
Business acquisition through issuance of Retek
common stock and stock options...................... $ 7,503 $ --
======== ========
Acquisition of property and equipment under
capital leases.................................... $ 10,200 $ --
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
RETEK INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------- ACCUMULATED
DEFERRED OTHER
PAID-IN STOCK-BASED COMPREHENSIVE
SHARES AMOUNT CAPITAL COMPENSATION LOSS
--------------- --------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999......... 46,503 $ 465 $140,089 $(19,978) $ (582)
Tax benefit from exercise of HNC
Software Inc. stock options........ 5,666
Common stock issuance costs.......... (287)
Common stock issued under Employee
Stock Purchase Plan.................. 464 5 5,917
Common stock and stock options
issued for acquisition of
HighTouch.......................... 389 4 7,499
Common stock issued.................. 300 3 10,197
Deferred stock-based compensation.... 1,543 (1,543)
Amortization of stock-based
Compensation....................... 8,261
Unrealized gain on investments....... 2
Foreign currency translation
Adjustment......................... (1,013)
Net loss.............................
------ ----- -------- -------- -------
BALANCE AT SEPTEMBER 30, 2000........ 47,656 $ 477 $170,624 $(13,260) $(1,593)
====== ===== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS' COMPREHENSIVE
(DEFICIT) EQUITY LOSS
------------- ----------------- ---------------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999......... $ 3,981 $ 123,975
Tax benefit from exercise of HNC
Software Inc. stock options........ 5,666
Common stock issuance costs.......... (287)
Common stock issued under Employee
Stock Purchase Plan................ 5,922
Common stock and stock options
issued for acquisition of
HighTouch.......................... 7,503
Common stock issued.................. 10,200
Deferred stock-based compensation....
Amortization of stock-based
Compensation....................... 8,261
Unrealized loss on investments....... 2 $ 2
Foreign currency translation
Adjustment......................... (1,013) (1,013)
Net loss............................. (36,007) (36,007) (36,007)
-------- --------- ---------
BALANCE AT SEPTEMBER 30, 2000........ $(32,026) $ 124,222 $ (37,018)
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
RETEK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND BASIS OF PRESENTATION
The Company
Retek Inc. and its wholly owned subsidiaries, Retek Information Systems,
Inc., WebTrak Limited and HighTouch Technologies, Inc. ("we" "us" or the
"Company"), develop application software that provides a complete information
infrastructure solution to the global retail industry. Our offerings include
traditional merchandising capabilities such as inventory management and
purchasing; logistics capabilities including warehouse and distribution
management; enhanced supply chain solutions such as forecasting, planning, and
supply chain visibility; and customer relationship and order management
applications. We also provide Internet-based business-to-business commerce
applications that offer collaborative capabilities enabling retailers and their
trading partners to interact in real-time on a wide variety of tasks. Many of
our products incorporate proprietary neural-network predictive technology that
enhances the usefulness, accuracy, and adaptability of our applications enabling
better decision-making by retailers. We are headquartered in Minneapolis,
Minnesota.
Separation from HNC Software Inc.
On October 2, 2000, HNC Software Inc. ("HNC") announced it had completed its
separation of Retek Inc. from HNC through a distribution (the "Distribution") of
HNC's entire holding of Retek shares, which consisted of 40 million shares of
common stock. HNC previously received a private letter ruling from the Internal
Revenue Service that HNC's pro rata distribution of its shares of Retek common
stock would be tax-free to HNC and its stockholders for U.S. federal income tax
purposes. After the close of the Nasdaq National Market on September 29, 2000,
HNC stockholders who were stockholders of record as of September 15, 2000 were
distributed 1.243 shares of Retek common stock for each share of HNC stock held
as of the record date.
For periods prior to the Distribution, our taxable income or losses were
included in the consolidated tax returns of HNC. For financial reporting
purposes, we computed income taxes on a stand-alone basis. Upon the
Distribution, we became responsible for our income taxes and the filing of our
own income tax returns. Pursuant to a tax sharing agreement with HNC for periods
prior to the Distribution, we were required to pay HNC an amount equal to the
tax liability we would have incurred on a separate return basis had we not
joined with HNC in filing a consolidated return. To the extent we determine that
we would have no tax liability on a separate return basis, HNC will pay us an
amount equal to the difference between HNC's consolidated tax liability with us
included in its consolidated tax return and the consolidated tax liability that
would have been due had we not been included in the consolidated tax return.
Similar provisions are defined under the tax sharing agreement for state tax
returns, which are filed on a group or unitary basis. As of September 30, 2000,
we had a net deferred tax asset of $43.6 million, which includes a net operating
loss carryforward incurred prior to the Distribution. Any amounts owed to us by
HNC upon final determination of tax benefits received by HNC through the
Distribution are classified as deferred income tax assets until such
determination is made.
Basis of Presentation
We have prepared the accompanying interim consolidated financial statements,
without audit, in accordance with the instructions to Form 10-Q and, therefore,
the accompanying interim consolidated financial statements do not necessarily
include all information and footnotes necessary for a fair presentation of our
financial position, results of operations and cash flows in accordance with
accounting principles generally accepted in the United States of America.
We believe the accompanying unaudited financial information for interim
periods presented reflects all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation. These consolidated financial
statements and notes thereto should be read in conjunction with our audited
financial statements and notes thereto presented in our Annual Report on Form
10-K for the fiscal year ended December 31, 1999. The interim financial
information contained in this Report on Form 10-Q is not necessarily indicative
of the results to be expected for any other interim period or for an entire
fiscal year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and
7
<PAGE> 8
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities" which is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. This statement
establishes a new model for accounting for derivatives and hedging activities.
Under FAS 133, all derivatives must be recognized as assets and liabilities and
measured at fair value. In July 1999, the FASB issued Statement of Accounting
Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities
-- Deferral of the Effective Date of FASB Statement No. 133" which defers the
effective date to all fiscal quarters of fiscal years beginning after June 15,
2000. In 2000, the FASB issued Statement of Accounting Standards No. 138 (FAS
138) "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133", which is effective for all
fiscal quarters after June 15, 2000. FAS 138 amends the accounting and reporting
standards of FAS 133 for certain derivative instruments and certain hedging
activities. The adoption of FAS 133 and the amendments thereof in FAS 138 are
not expected to have a significant impact on our consolidated financial position
or results of operations.
In January 2000, the Financial Accounting Standards Board's Emerging Issues
Task Force published Issue No. 00-2 "Accounting for Web Site Development Costs",
or EITF 00-2. EITF 00-2 applies the guidance given in the American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use", or SOP 98-1,
to Web site development costs. Under SOP 98-1, software development costs,
consisting of internally developed software and Web site development costs,
include internal and external costs incurred to develop internal-use computer
software during the application development stage are capitalized. Application
development stage costs generally include software configuration, coding,
installation to hardware and testing. Costs of significant upgrades and
enhancements that result in additional functionality are also capitalized. Costs
incurred for maintenance and minor upgrades and enhancements are expensed as
incurred. The estimated useful lives are based on planned or expected
significant modification or replacement of software applications, in response to
the rapid rate of change in the Internet industry and technology in general.
Adoption of EITF 00-2 was required for the third quarter of 2000. The adoption
of EITF 00-2 did not have a significant impact on our consolidated financial
position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition." Amendments to the Bulletin
delayed the effective date until the fourth quarter of 2000. Adoption of Staff
Accounting Bulletin No. 101 is not expected to have a significant impact on our
consolidated financial position or results of operations.
NOTE 2 -- PER SHARE DATA
Basic net loss per share is calculated based only on the weighted average
common shares outstanding during the period. Diluted earnings per share is
computed on the basis of the weighted average basic shares outstanding plus the
dilutive effect of outstanding stock options using the "treasury stock" method.
For periods prior to our initial public offering, the weighted average basic
shares outstanding is a pro forma amount which reflects the September 1999
reincorporation of Retek Inc. and the 40 for .001 stock split of Retek Inc.
common shares.
For the three months and nine months ended September 30, 2000, the
calculation of diluted loss per share excludes the impact of the potential
exercise of 8,399,533 stock options outstanding at September 30, 2000 because
the effect would be antidilutive.
Pro forma unaudited income per common share for the three months and nine
months ended September 30, 1999 is calculated for basic income per share only
since we had no outstanding stock options during those periods.
NOTE 3 - ACQUISITION
On May 10, 2000, we acquired HighTouch Technologies, Inc. ("HighTouch") for
a cash payment of $18.7 million, including direct acquisition costs and 389,057
shares of our common stock. The application of the purchase method of accounting
for the acquisition resulted in an excess of cost over net assets acquired of
approximately $30.6 million, of which $26.6 million has been allocated to
intangible assets and $4.0 million has been allocated to in-process research and
development.
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<PAGE> 9
In conjunction with these purchases, we recorded various intangible assets.
Intangible assets are comprised of purchased software and other rights that are
stated at lower of cost or net realizable value. Intangible assets are amortized
as follows:
<TABLE>
<CAPTION>
AMORTIZATION METHOD ESTIMATED USEFUL LIFE
<S> <C> <C>
Purchased software costs..... Straight-line 36 to 42 months
Assembled work force......... Straight-line 3 years
Customer base................ Straight-line 3 to 5 years
Noncompetition agreements.... Straight-line 5 years
Trademarks................... Straight-line 5 years
Goodwill..................... Straight-line 5 years
</TABLE>
In connection with our acquisition of HighTouch, acquired research and
development of $4.0 million was charged to operations on the acquisition date.
HighTouch's products provide real-time transaction management and customer
service solutions that support multi-channel customer interactions. HighTouch
owns certain direct consumer management technologies that we have incorporated
into Retek CRM, our enterprise-level customer interaction system. The
classification of the technology as complete or under development was made in
accordance with the guidelines of Statement of Financial Accounting Standards
No. 86, Statement of Financial Standards No. 2 and Financial Accounting
Standards Board Interpretation No. 4. At the time of the acquisition, HighTouch
had three products under development including Customer Order Management, which
was subsequently completed by Retek in July of 2000 and Customer Direct
Marketing and Customer Loyalty and Retention, which are still in development.
The following table presents the consolidated results of operations on an
unaudited pro forma basis as if the acquisition of HighTouch had taken place at
the beginning of each year (dollars in thousands).
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 2000 30, 1999
<S> <C> <C>
Net revenues..................... $ 59,948 $ 59,306
Net (loss) income................ (40,156) 2,883
Basic and Pro forma net (loss)
income per share................. (0.85) 0.07
</TABLE>
The unaudited pro forma results of operations are for comparative purposes
only and do not necessarily reflect the results that would have occurred had the
acquisition occurred at the beginning of the periods presented or the results
which may occur in the future.
NOTE 4 -- STRATEGIC ALLIANCE WITH IBM
On September 5, 2000 we entered into a strategic relationship with
International Business Machines Corporation ("IBM"). Pursuant to this
relationship, Retek and IBM will jointly market, sell, and service a
comprehensive retail e-business solution consisting of Retek applications and
IBM software and hardware technologies. In connection with entering into this
relationship, we and IBM entered into a Common Stock Purchase Agreement ("Stock
Agreement") pursuant to which we issued 300,000 shares of our common stock to
IBM in exchange for IBM entering into the relationship and providing to us IBM
hardware and software for use by us during the initial term of the relationship.
This IBM hardware and software will be used by us to adapt our retail
applications Retail Server exchange platform and on-line marketplace to IBM's DB
Universal Database. This arrangement has been accounted for as a capital lease
of the hardware and software. Accordingly, the aggregate fair value of our
common shares issued of $10.2 million has been included in property and
equipment and is being amortized using the straight line method over the
twenty-seven month term of this portion of the arrangement.
The Stock Agreement also requires us to issue shares of our common stock to
IBM upon reaching certain revenue targets related to our software applications
sold under the joint marketing and selling arrangements in 2001, 2002 and 2003.
Under the Stock Agreement, we will be obligated to pay IBM $5 million, $10
million and $15 million related to 2001, 2002 and 2003, respectively, in shares
of our common stock if annual revenue targets, as stated in the Stock Agreement,
are met. The Stock Agreement provides for increases or decreases of the amounts
to be paid to IBM in the event these revenue targets are exceeded or are
partially met.
9
<PAGE> 10
NOTE 5 -- SALE OF FUTURE ACCOUNTS RECEIVABLE
During the quarter ended September 30, 2000, we sold our interest in $10
million of future accounts receivable due to us under contracts with various
customers. These balances were sold to a financial institution. The
amount received for these future balances due are included in deferred revenue
as of September 30, 2000.
NOTE 6 -- RECLASSIFICATIONS
Certain reclassifications have been made to our December 31, 1999
consolidated balance sheet to conform with the presentation at September 30,
2000. These reclassifications had no impact on previously reported stockholders'
equity.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes, and the other financial information included
in this Quarterly Report on Form 10-Q. This discussion and analysis contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of specified factors, including those set forth in the
section below entitled "Factors That May Impact Future Results of Operations"
and elsewhere in this Quarterly Report on Form 10-Q.
OVERVIEW
We completed our initial public offering on November 23, 1999. Prior to the
completion of our initial public offering, we were a wholly owned subsidiary of
HNC Software Inc., a business-to-business software company that develops and
markets predictive software solutions. On October 2, 2000, HNC announced it had
completed its separation of Retek Inc. from HNC through a distribution to HNC's
stockholders (the "Distribution") of HNC's entire holding of Retek shares, which
consisted of 40 million shares of common stock. HNC previously received a
private letter ruling from the Internal Revenue Service that HNC's pro rata
distribution of its shares of Retek common stock would be tax-free to HNC and
its stockholders for U.S. federal income tax purposes. After the close of the
Nasdaq National Market on September 29, 2000, HNC stockholders who were
stockholders of record as of September 15, 2000 were distributed 1.243 shares of
Retek common stock for each share of HNC stock held as of the record date.
Our business combines the business activities of Retek Information Systems,
Inc. and Retek Inc., formerly Retek Logistics, Inc. Founded in 1995, Retek
Information Systems, a developer and marketer of Internet-based,
business-to-business software solutions for retailers, was acquired by HNC in
1996. Founded in 1985 as Practical Control Solutions, Inc., Retek Logistics, a
developer of warehouse management software solutions, was acquired by HNC in
1998. The acquisition of Retek Information Systems by HNC allowed us to
integrate HNC's patented predictive technology into our software solutions for
retailers. On September 9, 1999, Retek Logistics was reincorporated as a
Delaware corporation and renamed "Retek Inc." Immediately prior to the
completion of our initial public offering on November 23, 1999, in connection
with the separation of our business from HNC, HNC contributed all of the
outstanding capital stock of Retek Information Systems to Retek Inc. Retek
Information Systems currently operates as a wholly owned subsidiary.
We generate revenue from the sale of software licenses, maintenance and
support contracts, and professional consulting and contract development
services. Until the fourth quarter of 1999, we generally licensed products to
customers on a perpetual basis and recognized revenue upon delivery of the
products. Starting in the fourth quarter of 1999, we revised the terms of our
software licensing agreements for the majority of our software products sold.
Under the revised terms, we provide technical advisory services after the
delivery of our products to help customers exploit the full value and
functionality of our products. Revenue from the sale of software licenses under
these agreements will be recognized as the technical advisory services are
performed. We expect the periods of technical advisory services will generally
range from 12 to 24 months, as determined by the customers' objectives. As we
continue to recognize license and service revenue over a period of time, rather
than upon delivery of the product, we will recognize significantly less revenue,
have lower associated margins for several quarters, as compared to previous
quarters, have higher operating expenses as a percentage of total revenues and
incur operating losses for several quarters. Deferred revenue consists
principally of the unrecognized portion of revenue received under license and
maintenance service agreements. Deferred license revenue is recognized ratably
or as a percentage of completion based on the contract terms. Deferred
maintenance revenue is recognized ratably over the term of the service
agreement.
Customers who license our software generally purchase maintenance contracts,
typically covering renewable annual periods. In addition, customers may purchase
consulting services, which are customarily billed at a fixed daily rate plus
out-of-pocket expenses. Contract development services, including new product
development services, are typically performed for a fixed fee. We also offer
training services that are billed on a per student or per class session basis.
The growth of our customer base is primarily attributable to our increased
market penetration and our expanding product offering. Our investment in
research and development, and recent acquisitions and alliances have helped us
bring new software solutions to market. These investments produced a suite of
decision support solutions in 1997; the retooling of our applications for the
web in 1998; the delivery of Internet-based business-to-business collaborative
planning, critical path and product design solutions in 1999; and several
additional collaborative offerings available for delivery through public
marketplaces, private exchanges and Retek's own hosted service through 2000. To
support our growth during these periods, we also continued to invest in internal
infrastructure by hiring employees across various departments.
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We market our software solutions worldwide through direct and indirect sales
channels. Revenue generated from our direct sales channel accounted for
approximately 93.6% and 91.5% for the quarter and nine months ended September
30, 2000, respectively, as compared to 74.8% and 74.0% for the same periods as
of September 30, 1999. Indirect sales channel revenue primarily arises from our
relationship with Oracle.
On October 29, 1999, we completed the purchase of all the outstanding
capital stock of WebTrak Limited. WebTrak owns the WebTrack Critical Path and
Portfolio Private Label products that we currently distribute. In connection
with the purchase of WebTrak, we issued to former WebTrak shareholders notes,
which were due on November 26, 1999, in the principal amount of $5.33 million
and a convertible note, which was due on November 26, 1999, in the principal
amount of $2.67 million. The convertible note was, at the option of the holder,
convertible at the time of payment into the number of shares of the Company's
common stock equal to the principal amount of the note divided by the initial
offering price of $15.00. On November 29, 1999 we issued 177,778 shares of our
common stock to the holder of the convertible note in full satisfaction of our
obligations. The remaining notes were paid in full on their due date.
On May 10, 2000, we completed our acquisition of HighTouch Technologies,
Inc., a provider of real-time transaction management and customer service
solutions that support multi-channel customer interactions. HighTouch owns
certain direct consumer management technologies that we have incorporated into
Retek Retail CRM, our enterprise-level customer interaction system. In
connection with the purchase of HighTouch, we paid $18.7 million in cash,
including direct acquisition costs, and issued 389,057 shares of our common
stock to the former sole shareholder of HighTouch.
On September 5, 2000 we entered into a strategic relationship with International
Business Machines Corporation ("IBM"). Pursuant to this relationship, Retek and
IBM will jointly market, sell, and service a comprehensive retail e-business
solution consisting of Retek applications and IBM software and hardware
technologies. In connection with entering into this relationship, we and IBM
entered into a Common Stock Purchase Agreement ("Stock Agreement") pursuant to
which we issued 300,000 shares of our common stock to IBM in exchange for IBM
entering into the relationship and IBM providing to us, at no cost, IBM hardware
and software for use by us during the initial term of the relationship. The
Stock Agreement requires us to issue shares of our common stock to IBM upon
reaching certain revenue targets related to Retek software applications sold
under the joint marketing and selling arrangements in 2001, 2002 and 2003. Under
the Stock Agreement, we will be obligated to pay IBM $5 million, $10 million and
$15 million related to 2001, 2002 and 2003, respectively, in shares of our
common stock if annual revenue targets, as stated in the Stock Agreement, are
met. The Stock Agreement provides for increases or decreases of the amounts to
be paid to IBM in the event these revenue targets are exceeded or are partially
met.
Revenue attributable to customers outside of North America accounted for
approximately 17.3 % and 24.3% for the quarter and nine months ended September
30, 2000, respectively as compared to 33.3% and 39.4% for the same periods as of
September 30, 1999. Approximately 9.6% and 8.8% of our sales were denominated in
currencies other than the U.S. dollar for the quarter and nine months as of
September 30, 2000, respectively as compared to 5.9% and 14.7% for the same
periods as of September 30, 1999.
We primarily sell perpetual licenses for which we recognize revenue in
accordance with generally accepted accounting principles, upon meeting each of
the following criteria:
- execution of a written purchase order, license agreement or contract;
- delivery of software authorization keys;
- the license fee is fixed and determinable;
- collectibility of the proceeds is assessed as being probable; and
- vendor-specific objective evidence exists to allocate the total fee to
elements of the arrangement.
Vendor-specific objective evidence is based on the price charged when an
element is sold separately, or if not yet sold separately, is established by
authorized management. All elements of each order are valued at the time of
revenue recognition. We recognize revenue:
- for sales made through our distributors, resellers and original equipment
manufacturers, at the time these partners report to us that they have sold
the software to the end-user and after all revenue recognition criteria have
been met;
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- from maintenance agreements related to our software, over the respective
maintenance periods;
- from customer modifications, as the services are performed using the
percentage of completion method; and
- from services, using the percentage of completion method, based on costs
incurred to date compared to total estimated costs at completion.
We record amounts received under contracts in advance of performance as
deferred revenue and generally recognize these amounts within one year from
receipt. Any amount that will not be recognized within one year of receipt is
recorded in non-current deferred revenue.
RESULTS OF OPERATIONS
The following table presents selected financial data for the periods
indicated as a percentage of our total revenue. Our historical reporting results
are not necessarily indicative of the results to be expected for any future
period.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF AS A PERCENTAGE OF
TOTAL REVENUE TOTAL REVENUE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- ----------------------------------
2000 1999 2000 1999
----------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
License and maintenance................. 65.6% 70.1% 58.8% 71.7%
Services and other...................... 34.4 29.9 41.2 28.3
Total revenue................... 100.0 100.0 100.0 100.0
Cost of revenue:
License and maintenance................. 26.3 4.1 27.4 7.1
Services and other...................... 25.1 20.8 30.0 20.2
Total cost of revenue........... 51.4 24.9 57.4 27.3
Gross margin.............................. 48.6 75.1 42.6 72.7
Operating expenses:
Research and development................ 35.7 25.0 43.7 25.4
Sales and marketing..................... 37.6 22.8 47.1 22.4
General and administrative.............. 10.9 7.6 13.2 7.1
Amortization of stock-based
compensation 10.8 - 13.8 -
Acquired in-process research and
Development........................... - - 6.7 -
Acquisition related amortization of
intangibles........................... 9.1 1.3 8.2 1.4
Total operating expenses........ 104.1 56.7 132.7 56.3
Operating (loss) income................... (55.5) 18.4 (90.1) 16.4
Other income, net......................... 0.3 (1.7) 2.5 (0.6)
(Loss) income before income tax (benefit)
provision............................... (55.2) 16.7 (87.6) 15.8
Income tax (benefit) provision............ (19.1) 8.6 (27.5) 7.0
Net (loss) income......................... (36.1) 8.1 (60.1) 8.8
Cost of license and maintenance revenue,
as a percentage of license and
maintenance revenue..................... 40.1 5.8 46.6 9.9
Cost of services and other revenue, as a
percentage of services and other
revenue................................. 72.8 69.8 72.9 71.1
</TABLE>
Three Months Ended and Nine Months Ended September 30, 2000 and 1999
Revenue
Total revenue. Total revenue increased 31.4% and 3.7% to $26.4 and $59.9
million for the quarter and nine months ended September 30, 2000, respectively,
from $20.1 and $57.8 million for the same periods in 1999.
License and maintenance revenue. License and maintenance revenue was $17.3
and $35.2 million for the quarter and nine months ended September 30, 2000,
respectively, an increase of 22.8% and a decrease of 14.9% from comparable
periods in 1999. As noted above in the section entitled "Overview", we recently
revised the terms of our software license agreements so that revenue is
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recognized over a number of quarters rather than upon delivery. The increase in
license revenue for the three months ended September 30, 2000 compared to the
same period in 1999 was due to the growing number of customers that have
installed our software solutions and had concurrent advisory periods during the
three months ended September 30, 2000. The decrease in license revenue for the
nine months ended September 30, 2000 was primarily due to the revised terms used
in negotiating our license contracts. As a result, year over year period revenue
decreased in the nine month period ended September 30, 2000 compared to the same
period in 1999. Maintenance revenue increased $2.2 and $7.3 million for the
quarter and nine months ended September 30, 2000, respectively, due to the
growing base of customers that have installed our software solutions.
Services and other revenue. Services and other revenue totaled $9.1 and
$24.7 million for the quarter and nine months ended September 30, 2000,
respectively, an increase of 51.4% and 50.8% from comparable periods in prior
year. The increases were due to $3.1 and $10.0 million increases in consulting
services and custom development projects for the quarter and nine months ended
September 30, 2000, respectively. Our number of billable employees increased to
90 as of September 30, 2000 from 69 as of September 30, 1999. In addition, third
party consultants are used on an as needed basis depending upon our allocation
of internal resources.
Cost of Revenue
Cost of license and maintenance revenue. Cost of license and maintenance
revenue consists primarily of fees for third party software products that are
integrated into our products; third party license consultant costs; salaries and
related expenses of our customer support organization; and an allocation of our
facilities and depreciation expense. Cost of license and maintenance revenue was
$6.9 and $16.4 million for the quarter and nine months ended September 30, 2000,
respectively, an increase of 746.6% and 302.4% over comparable periods in 1999.
As license and maintenance revenue increases, we expect to experience increased
costs resulting from increased royalty fees and an increase in the number of
support personnel required to service our growing customer base. The number of
cost of license and maintenance revenue personnel increased to 38 as of
September 30, 2000 from 7 as of September 30, 1999. In addition, we incurred
higher third party license consultant costs. We expect the cost of license and
maintenance revenue to continue to increase in absolute dollars as license and
maintenance revenue increases.
Cost of services and other revenue. Cost of services and other revenue
includes salaries and related expenses of our consulting organization; cost of
third parties contracted to provide consulting services to our customers; and an
allocation of facilities and depreciation expense. Cost of services and other
revenue was $6.6 and $18.0 million for the quarter and nine months ended
September 30, 2000, respectively, an increase of 58.0% and 54.5% over comparable
periods in 1999. As a percentage of services and other revenue, cost of services
and other revenue was 72.8% and 69.8% in the quarters ended September 30, 2000
and 1999, respectively, and 72.9% and 71.1% for the nine months ended September
30, 2000 and 1999, respectively. During the third quarter of 2000, we continued
to expand our consulting services business, increasing the number of personnel
to 90 as of September 30, 2000 from 69 as of September 30, 1999.
Operating Expenses
Research and development. Research and development expenses, which are
expensed as incurred, consist primarily of salaries and related costs of our
engineering organization; fees paid to third-party consultants; and an
allocation of facilities and depreciation expenses. We have increased investment
in research and development in absolute dollars each year since 1995. Research
and development expenses were $9.4 and $26.2 million for the quarter and nine
months ended September 30, 2000, respectively, an increase of 87.6% and 77.6%
over comparable periods in 1999. The absolute dollar increases in research and
development expenses were due to significant increases in personnel costs, which
included costs related to hired personnel and third party consultants. Research
and development personnel increased to 298 in the third quarter of 2000 from 184
in the third quarter of 1999. We invested heavily in the development of new
product solutions during the first three quarters of 2000, including the
integration of HighTouch Technologies, Inc.'s product suite into our own. Also,
the allocation for facilities and depreciation expense increased as a result of
expenditures for additional office space and capital equipment required to
support the additional personnel. We expect the absolute dollar increase in
research and development expenses to continue as we invest in the development of
other new solutions.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and related costs of the sales and marketing organization; sales
commissions; costs of marketing programs, including public relations,
advertising, trade shows and sales collateral; and an allocation of facilities
and depreciation expenses. Sales and marketing expenses were $9.9 and $28.2
million for the quarter and nine months ended September 30, 2000, respectively,
an increase of 116.9% and 118.1% over comparable periods in 1999. The increases
were primarily due to increases in personnel and related costs of $3.1 and $7.1
million for the quarter and nine months ended September 30, 2000, respectively,
increases in third party consulting of $774,000 and $2.3 million for the quarter
and nine months
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ended September 30, 2000, respectively, and increases in marketing costs of
$746,000 and $3.8 million for the quarter and nine months ended September 30,
2000, respectively. In the third quarter of 2000, personnel and related costs
increased due to an increase in the number of sales and marketing employees to
138 from 74 in the third quarter of 1999. The increase in personnel and related
costs in 2000 was due to the continued build up of our sales force and marketing
operations. Also, the allocation for facilities and depreciation expense
increased as a result of expenditures required for additional office space and
capital equipment to support the additional personnel.
General and administrative. General and administrative expenses consist
primarily of costs from our finance and human resources organizations; legal and
other professional service fees; and an allocation of facilities costs and
depreciation expenses. General and administrative expenses were $2.9 million and
$7.9 million for the quarter and nine months ended September 30, 2000,
respectively, increases of 88.6% and 93.7% over comparable periods in 1999. The
increases in absolute dollars in general and administrative expenses in the
quarter and nine months ended September 30, 2000 were attributable to the growth
of the administrative organization required to support our overall growth.
Personnel and related costs increased $334,000 and $1.4 million for the quarter
and nine months ended September 30, 2000, respectively. In the third quarter of
2000 our total number of general and administrative employees increased to 63
from 35 in the third quarter of 1999. The increase was also due to us incurring
additional compliance expenses and other professional fees associated with being
an independent public company. In addition, the allocation for facilities and
depreciation expense increased as a result of expenditures for additional office
space and capital equipment required to support the additional personnel. We
expect general and administrative expenses to increase in absolute dollars in
the foreseeable future to support infrastructure growth.
Amortization of stock-based compensation. Deferred stock-based compensation
represents the difference between the exercise price and the fair value of our
common stock for accounting purposes on the date that certain stock options were
granted. This deferred amount is included as a component of stockholders' equity
and is being amortized on an accelerated basis by charges to operations over the
vesting period of the options, consistent with the method described in Financial
Accounting Standards Board Interpretation No. 28. We granted stock options to
our employees under the 1999 Equity Incentive Plan and the HighTouch
Technologies, Inc. 1999 Stock Option Plan and to members of our board of
directors through both the 1999 Equity Incentive Plan and the 1999 Directors
Stock Option Plan. Amortization of stock-based compensation was $2.8 and $8.3
million for the quarter and nine months ended September 30, 2000, respectively.
Acquired in-process research and development. In connection with our
acquisition of HighTouch Technologies, Inc. in May 2000, acquired in-process
research and development of $4.0 million was charged to results of operation on
the acquisition date. HighTouch is a provider of customized software and
services relating to customer relationship management ("CRM"). The
classification of the technology as complete or under development was made in
accordance with the guidelines of Statement of Financial Accounting Standards
No. 86, Statement of Financial Accounting Standards No. 2 and Financial
Accounting Standards Board Interpretation No. 4. Prior to its acquisition,
HighTouch primarily sold customized software and services to a variety of
customers in the retail industry. At the time of acquisition, HighTouch had
technology under development relating to the creation of the company's first
fully integrated standardized off-the-shelf CRM product. This in-process
research and development project was estimated to achieve technological
feasibility in 2000.
We used an independent appraisal firm to assist us with our valuation of the
fair market value of the purchased assets of HighTouch. Fair market value is
defined as the estimated amount at which an asset might be expected to be
exchanged between a willing buyer and willing seller assuming the buyer
continues to use the assets in its current operations. The in-process research
and development projects were valued through the use of a discounted cash flow
analysis, taking into account projected future cash flows associated with these
projects once they achieve technological feasibility, their stage of completion
as of the acquisition date, and the expected return requirements (i.e. discount
rate) for present valuing of the projected cash flows. Stage of completion was
estimated by considering time, cost, and complexity of tasks completed prior to
the acquisition as a percentage of total time, cost and effort required for the
total project up to achieving technological feasibility.
With respect to the projected financial information provided to the
appraiser, Retek prepared a detailed set of projections forecasting revenue from
the CRM technology as well as gross profit and operating profit margins. These
projections were made based on an assessment of customer needs and the expected
pricing and cost structure.
With respect to the discount rates used in the valuation approach, the
incomplete technology represents a mix of near and mid-term prospects for the
business and imparts a level of uncertainty to its prospects. A reasonable
expectation of return on the incomplete technology would be higher than that of
completed technology due to these inherent risks. As a result, the earnings
associated with incomplete technology were discounted at a rate of 26.2% based
upon the following methodology:
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The Capital Asset Pricing Model was used to determine the cost of equity. It
combines a risk free rate of return with an equity risk premium multiplied by a
factor, referred to as Beta, which is based on the performance of common stock
prices of similar publicly traded companies. Employing these data, the discount
rate attributable to the business was 21.2%, which was used for valuing
completed technology. Since incomplete technology would require a higher return
than completed technology, the valuation report prepared by our appraiser used a
rate of 26.2% to present value cash flows (in excess of a return on other assets
of the business) attributable to in-process research and development projects.
The HighTouch in-process research and development project continues to
progress, in all material respects, consistently with our original assumptions
that were provided to the independent appraiser and used to value the in-process
research and development.
These statements regarding revenues and expenses are forward-looking
statements, which are subject to risks and uncertainties. Actual results may
differ materially from those anticipated. Our inability to complete the
in-process technologies within the expected timeframes could materially impact
future revenues and earnings, which could have a material adverse effect on our
business, financial condition and results of operations.
Acquisition-related amortization of intangibles. Acquisition-related
amortization of intangibles increased to $2.4 and $4.9 million for the quarter
and nine months ended September 30, 2000, respectively, from $264,000 and
$780,000 for the comparable periods in 1999. In connection with our purchase of
HighTouch in 2000, the application of the purchase method of accounting for the
acquisition resulted in an excess of cost over net assets acquired of $30.6
million, of which $26.6 million was allocated to intangibles and $4.0 million
was allocated to in-process research and development. In conjunction with the
purchase, we recorded various intangible assets, which are being amortized over
estimated useful lives ranging from three to five years. In connection with the
purchase of WebTrak in 1999, the application of the purchase method of
accounting for the acquisition resulted in an excess of cost over net assets
acquired of $8.1 million, of which $6.6 million was allocated to intangibles and
$1.5 million was allocated to in-process research and development. In
conjunction with the purchase, we recorded various intangible assets, which are
being amortized over estimated useful lives ranging from three to five years. In
connection with the purchase of Retek Logistics in 1998, the application of the
purchase method of accounting for the acquisition resulted in an excess of cost
over net assets acquired of approximately $5.8 million, of which $4.0 million
was allocated to intangibles and $1.8 million was allocated to in-process
research and development. In conjunction with the purchase, we recorded various
intangible assets, which are being amortized over estimated useful lives ranging
from three to five years.
Other income, net. Other income, net increased to $75,000 and $1.5 million
for the quarter and nine months ended September 30, 2000, respectively, up from
($344,000) and ($330,000) for the same periods in 1999. The increase was due to
interest income earned on cash equivalents and investments.
Income tax (benefit) provision. The income tax (benefit)/provision was
($5.0) and ($16.5) million for the quarter and nine months ended September 30,
2000, respectively, down from $1.7 million and $4.1 million for the same periods
in 1999. These amounts are based on management's estimates of the effective tax
rates to be incurred by us during those respective full fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering, we funded operations primarily through
HNC in the form of intercompany advances. Since our initial public offering, we
have not obtained further funding from HNC. At September 30, 2000, our cash and
cash equivalent balance was $30.5 million. In addition, we had investments of
$17.2 million.
Net cash provided by operating activities was $6.1 million for the nine
months ended September 30, 2000 and $181,000 for the comparable period in 1999.
Principal operating cash flow adjustments that offset our net loss were
amortization of stock-based compensation, acquired in-process research and
development, depreciation and amortization, increases in deferred revenue,
accounts payable, and accrued liabilities. Uses of cash for the nine months
ended September 30, 2000 were due to increases in deferred tax benefit, other
assets and accounts receivable, which was partially offset by an increase in the
provision for doubtful accounts.
Net cash used in investing activities was $47.7 million for the nine months
ended September 30, 2000 and $3.7 million for the comparable period in 1999. In
the nine months ended September 30, 2000, uses of cash were due to the cash paid
for business acquisitions, acquisition of capital equipment, primarily computer
equipment and software, purchase of investments and the purchase of investments
for sale.
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Net cash used by financing activities was $10.6 million in the nine months
ended September 30, 2000. Net cash provided by financing activities was $3.6
million for the nine months ended September 30, 1999. Net cash used in 2000
included repayment of debt, $596,000 in borrowings from HNC and $15.4 million in
payments to HNC. Beginning in 1997, HNC implemented a cash management policy
that all cash balances were transferred daily from all of HNC's subsidiaries,
including us, into a centralized cash management account at HNC. The financing
activities with HNC include borrowings and payment from these cash management
activities in 1999. Starting in November 1999, these daily transfers to HNC
ceased. Net cash provided by financing activities in 2000 included proceeds from
the issuance of common stock.
We believe that our current cash and cash equivalents, investments and net
cash provided by operating activities will be sufficient to meet our working
capital and capital expenditure requirements for at least the next 12 months.
Management has invested the excess of current operating requirements in
interest-bearing, investment-grade securities.
As discussed in the financial statement footnotes, during the quarter ended
September 30, 2000 we sold our interest in $10 million future accounts
receivable balances due to us under contracts with various customers. The
amount received for these future balances due are included in the deferred
revenue balances as of September 30, 2000. These sales did not impact our days
sales outstanding (DSO) calculation as the amounts collected related to balances
due in the future that were not yet recorded as accounts receivable in our
financial statements as of September 30, 2000.
A portion of our cash could also be used to acquire or invest in
complementary businesses or products or otherwise to obtain the right to use
complementary technologies or data. We regularly evaluate, in the ordinary
course of business, potential acquisitions of such businesses, products,
technologies or data.
In addition, our ability to enter into any acquisition of a business or
assets may be limited pursuant to the terms of a corporate rights agreement
between HNC and us. Our ability to issue common stock in connection with
acquisitions, offerings or otherwise will be limited until September 29, 2002,
and possibly longer.
FACTORS THAT MAY IMPACT FUTURE RESULTS OF OPERATIONS
An investment in our common stock involves a high degree of risk. Investors
evaluating our company and its business should carefully consider the factors
described below and all other information contained in this Quarterly Report on
Form 10-Q before purchasing our common stock. Any of the following factors could
materially harm our business, operating results and financial condition.
Additional factors and uncertainties not currently known to us or that we
currently consider immaterial could also harm our business, operating results
and financial condition. Investors could lose all or part of their investment as
a result of these factors, in addition to others.
While management is optimistic about our long-term prospects, the following
factors, among others, could materially harm our business, operating results and
financial condition and should be considered when evaluating us.
Industry's rapid pace of change. If we are unable to develop new software
solutions or enhancements to our existing products on a timely and
cost-effective basis, or if new products or enhancements do not achieve market
acceptance, our sales may decline. The life cycles of our products are difficult
to predict because the business-to-business electronic commerce market for our
products is new and emerging and is characterized by rapid technological change
and changing customer needs. The introduction of products employing new
technologies could render our existing products or services obsolete and
unmarketable.
In developing new products and services, we may:
- fail to respond to technological changes in a timely or cost-effective
manner;
- encounter products, capabilities or technologies developed by others that
render our products and services obsolete or noncompetitive or that shorten
the life cycles of our existing products and services;
- experience difficulties that could delay or prevent the successful
development, introduction and marketing of these new products and services;
or
- fail to achieve market acceptance of our products and services.
Fluctuations in quarterly operating results. Our quarterly operating results
have fluctuated in the past and are expected to continue to fluctuate in the
future. If our quarterly operating results fail to meet analysts' expectations,
the trading price of our common stock could decline. In addition, significant
fluctuations in our quarterly operating results may harm our business operations
by making it difficult to implement our budget and business plan. Factors, many
of which are outside of our control, which could cause our operating results to
fluctuate include:
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- the size and timing of customer orders, which can be affected by customer
budgeting and purchasing cycles;
- the demand for and market acceptance of our software solutions;
- competitors' announcements or introductions of new software solutions,
services or technological innovations;
- our ability to develop, introduce and market new products on a timely
basis;
- customer deferral of material orders in anticipation of new releases or
new product introductions;
- our success in expanding our sales and marketing programs;
- technological changes or problems in computer systems; and
- general economic conditions which may affect our customers' capital
investment levels.
In addition, we have incurred, and will continue to incur, compensation
expense in connection with our grant of options under our 1999 Equity Incentive
Plan and our 1999 Directors Stock Option Plan. This expense will be amortized
over the vesting period of these granted options, which is generally four years,
resulting in lower quarterly income.
Quarterly expense levels are relatively fixed and are based, in part, on
expectations as to future revenue. As a result, if revenue levels fall below our
expectations, net income will decrease because only a small portion of our
expenses vary with revenue.
New type of license agreement. Until recently, we generally licensed our
products to customers on a perpetual basis, and recognized revenue upon delivery
of the products. In the fourth quarter of 1999, we entered into software
licensing agreements with revised terms for the majority of new sales of
software products. Under the revised agreements, we provide technical advisory
services after the delivery of our product to help customers exploit the full
value and functionality of our products. Revenue from the sale of software
licenses and technical advisory services under these agreements is recognized as
the services are performed over the contract period, which is generally 12 to 24
months, as determined by our customers' objectives. As we continue to recognize
license and service revenues over a period of time, rather than upon the
delivery of our products, we will recognize significantly less revenue, have
lower associated margins for several quarters, as compared to previous quarters,
have higher operating expenses as a percentage of total revenues and will incur
operating losses for several quarters.
Early stage of development of the retail.com network. We began operation of
the retail.com network on September 26, 1999. We incurred, and will continue to
incur, significant infrastructure costs in establishing this network. We will
continue to invest in new products and services to be offered over the
retail.com network in the foreseeable future. Broad and timely acceptance of the
retail.com network is subject to a number of significant risks. These risks
include:
- our need to provide value-enhancing software solutions and services on the
retail.com network to achieve widespread commercial acceptance of this
network;
- whether our network will be able to support large numbers of retailers and
the members of their supply chains; and
- our need to significantly expand internal resources and incur associated
expenses to support planned growth of the retail.com network.
We have established a subscription pricing model for the software solutions
provided on our retail.com network, whereby members pay an annual fee based on
the number of the member's employees who will have access to the network. As
additional services are added to the retail.com network, we will need to
establish pricing models for these new services. If the pricing models for the
retail.com network fail to be competitive and profitable or if they are not
acceptable to customers, our network will not be commercially successful, which
could harm our revenue and business.
Increased operating expenses. We intend to significantly increase operating
expenses as we:
- increase research and development activities;
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- increase services activities;
- develop and build the retail.com network;
- expand our distribution channels;
- increase sales and marketing activities, including expanding our direct
sales force;
- build our internal information technology system; and
- operate as an independent public company.
We will incur expenses before we generate any revenue from this increase in
spending. If we do not significantly increase revenue from these efforts, our
business and operating results could be seriously harmed.
Competitive pressures. The market for our software solutions is highly
competitive and subject to rapidly changing technology. Competition could
seriously impede our ability to sell additional products and services on terms
favorable us. Competitive pressures could reduce our market share or require us
to reduce prices, which would reduce our revenues and/or operating margins. Many
of our competitors have substantially greater financial, marketing or other
resources, and greater name recognition than us. In addition, these companies
may adopt aggressive pricing policies that could compel us to reduce the prices
of our products and services in response. Our competitors may also be able to
respond more quickly than we can to new or emerging technologies and changes in
customer requirements. Our current and potential competitors may:
- develop and market new technologies that render our existing or future
products obsolete, unmarketable or less competitive;
- make strategic acquisitions or establish cooperative relationships among
themselves or with other solution providers, which would increase the
ability of their products to address the needs of our customers; and
- establish or strengthen cooperative relationships with our current or
future strategic partners, which would limit our ability to sell products
through these channels.
As a result, we may not be able to maintain a competitive position against
current or future competitors.
Loss of key personnel. We believe that our future success will depend upon
our ability to attract and retain highly skilled personnel, including John
Buchanan, our chairman and chief executive officer; Gordon Masson, our
president; John L. Goedert, our chief operating officer; Gregory A. Effertz, our
vice president, finance and administration and chief financial officer and
Jeremy Thomas, our chief technology officer. We currently do not have any
key-man life insurance relating to key personnel, who are employees at-will and
are not subject to employment contracts except for Jeremy Thomas who has an
employment contract that expires in October 2001. The loss of the services of
any one or more of these key persons could harm our ability to grow our
business.
We also must attract, integrate and retain skilled sales, research and
development, marketing and management personnel. Competition for these types of
employees is intense, particularly in our industry. Failure to hire and retain
qualified personnel would harm our ability to grow the business.
Relationships with third parties who implement our products. We rely, and
expect to continue to rely, on a number of third parties to implement our
software solutions at customer sites. If we are unable to establish and maintain
effective, long-term relationships with these implementation providers, or if
these providers do not meet the needs or expectations of our customers, our
revenue will be reduced and our customer relationships will be harmed. Our
current implementation partners are not contractually required to continue to
help implement our software solutions. If the number of product implementations
continues to increase, we will need to develop new relationships with additional
third-party implementation providers to provide these services.
We may be unable to establish or maintain relationships with third parties
having sufficient qualified personnel resources to provide the necessary
implementation services to support our needs. If third-party services are
unavailable, we will be required to provide these services internally, which
would significantly limit our ability to meet customers' implementation needs
and would increase our operating expenses and could reduce gross margins. A
number of our competitors, including SAP, have significantly more established
relationships with these third parties and, as a result, these third parties may
be more likely to
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recommend competitors' products and services rather than our own. In addition,
we cannot control the level and quality of service provided by our current and
future implementation partners.
Intellectual property of third parties. We must now, and may in the future
have to, license or otherwise obtain access to the intellectual property of
third parties and related parties, including HNC, Lucent, MicroStrategy and
Oracle. Our business would be seriously harmed if the providers from whom we
license such software cease to deliver and support reliable products or enhance
their current products. In addition, the third-party software may not continue
to be available to us on commercially reasonable terms or prices or at all. Our
inability to maintain or obtain this software could result in shipment delays or
reduced sales of our products. Furthermore, we might be forced to limit the
features available in our current or future product offerings. Either
alternative could seriously harm business and operating results.
Confidentiality of intellectual property. We depend on our ability to
develop and maintain the proprietary aspects of our technology. To protect
proprietary technology, we rely primarily on a combination of contractual
provisions, confidentiality procedures, trade secrets, and copyright and
trademark laws.
We seek to protect our software, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection. In
addition, we cannot assure investors that any of our proprietary rights with
respect to the retail.com network will be viable or of value in the future
because the validity, enforceability and type of protection of proprietary
rights in Internet-related industries are uncertain and still evolving.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or obtain and use information that
we regard as proprietary. Policing unauthorized use of our products is difficult
and expensive, and while we are unable to determine the extent to which piracy
of its software products exists, software piracy may be a problem. In addition,
the laws of some foreign countries do not protect our proprietary rights to the
same extent as do the laws of the United States. We intend to vigorously protect
intellectual property rights through litigation and other means. However, such
litigation can be costly to prosecute and we cannot be certain that we will be
able to enforce our rights or prevent other parties from developing similar
technology, duplicating our products or designing around our intellectual
property.
Potential third party claims that our products infringe on their
intellectual property. There has been a substantial amount of litigation in the
software industry and the Internet industry regarding intellectual property
rights. It is possible that in the future third parties may claim that our
current or potential future products infringe their intellectual property. We
expect that software product developers and providers of electronic commerce
solutions will increasingly be subject to infringement claims as the number of
products and competitors in our industry segment grow and the functionality of
products in different industry segments overlap. Any claims, with or without
merit, could be time-consuming, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could seriously harm our business.
International sales. Since we sell products worldwide, our business is
subject to risks associated with doing business internationally. To the extent
that our sales are denominated in foreign currencies, the revenue we receive
could be subject to fluctuations in currency exchange rates. If the effective
price of the products we sell to our customers were to increase due to
fluctuations in foreign currency exchange rates, demand for our technology could
fall, which would, in turn, reduce our revenue. We have not historically
attempted to mitigate the effect that currency fluctuations may have on our
revenue through use of hedging instruments, and we do not currently intend to do
so in the future.
We anticipate that revenue from international operations will continue to
represent a substantial portion of our total revenue. Accordingly, our future
results could be harmed by a variety of factors, including:
- changes in foreign currency exchange rates;
- greater risk of uncollectible accounts;
- changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
- trade protection measures and import or export licensing requirements;
- potentially negative consequences from changes in tax laws;
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- difficulty in staffing and managing widespread operations;
- international variations in technology standards;
- differing levels of protection of intellectual property; and
- unexpected changes in regulatory requirements.
Acceptance of the Internet. As our software solutions are Internet-based, we
depend on the acceptance of the Internet as a communications protocol. However,
this acceptance may not continue. Rapid growth of the Internet is a recent
phenomenon. The Internet may not be accepted as a viable long-term
communications protocol for businesses for a number of reasons. These reasons
include:
- potentially inadequate development of the necessary communications and
computer network technology, particularly if rapid growth of the Internet
continues;
- delayed development of enabling technologies and performance improvements;
- increased security risks in transmitting and storing confidential
information over public networks; and
- potentially increased governmental regulation.
Errors and defects in our products. Our products are complex and,
accordingly, may contain undetected errors or failures when we first introduce
them or as we release new versions. This may result in loss of, or delay in,
market acceptance of our products and could cause us to incur significant costs
to correct errors or failures or to pay damages suffered by customers as a
result of such errors or failures. In the past, we have discovered software
errors in new releases and new products after their introduction. We have
incurred costs during the period required to correct these errors, although to
date such costs, including costs incurred on specific contracts, have not been
material. We may in the future discover errors in new releases or new products
after the commencement of commercial shipments.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"), which is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. This statement establishes a new
model for accounting for derivatives and hedging activities. Under FAS 133, all
derivatives must be recognized as assets and liabilities and measured at fair
value. In July 1999, the FASB issued Statement of Accounting Standards No. 137
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133," which defers the effective date to
all fiscal quarters of fiscal years beginning after June 15, 2000. In 2000, the
FASB issued Statement of Accounting Standards No. 138 (FAS 138) "Accounting for
Certain Derivative Instruments and Certain Hedging Activities -- an amendment of
FASB Statement No. 133", which is effective for all fiscal quarters after June
15, 2000. FAS 138 amends the accounting and reporting standards of FAS 133 for
certain derivative instruments and certain hedging activities. The adoption of
FAS 133 and the amendments thereof in FAS 138 are not expected to have a
significant impact on our consolidated financial position or results of
operations.
In January 2000, the Financial Accounting Standards Board's Emerging Issues
Task Force published Issue No. 00-2 "Accounting for Web Site Development Costs",
or EITF 00-2. EITF 00-2 applies the guidance given in the American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use", or SOP 98-1,
to Web site development costs. Under SOP 98-1, software development costs,
consisting of internally developed software and Web site development costs,
include internal and external costs incurred to develop internal-use computer
software during the application development stage are capitalized. Application
development stage costs generally include software configuration, coding,
installation to hardware and testing. Costs of significant upgrades and
enhancements that result in additional functionality are also capitalized. Costs
incurred for maintenance and minor upgrades and enhancements are expensed as
incurred. The estimated useful lives are based on planned or expected
significant modification or replacement of software applications, in response to
the rapid rate of change in the Internet industry and technology in general.
Adoption of EITF 00-2 was required for the
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third quarter of 2000. The adoption of EITF 00-2 did not have a significant
impact on our consolidated financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition." Amendments to the Bulletin
delayed the effective date until the fourth quarter of 2000. Adoption of Staff
Accounting Bulletin No. 101 is not expected to have a significant impact on our
consolidated financial position or results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discusses our exposure to market risk related to changes in
interest rates, foreign currency exchange rates and equity prices.
INTEREST RATE RISK
The fair value of our cash, cash equivalents and investments available for
sale at September 30, 2000 was $47.6 million. The objectives of our investment
policy are safety and preservation of invested funds and liquidity of
investments that is sufficient to meet cash flow requirements. It is our policy
to place cash, cash equivalents and investments available for sale with high
credit quality financial institutions and commercial companies and government
agencies in order to limit the amount of credit exposure. It is also our policy
to maintain certain concentration limits and to invest only in certain
"allowable securities" as determined by management. Our investment policy also
provides that our investment portfolio must not have an average portfolio
maturity of beyond eighteen months. Investments are prohibited in certain
industries and speculative activities. Investments must be denominated in U.S.
dollars. An increase in market interest rates would not directly affect our
financial results.
FOREIGN CURRENCY EXCHANGE RATE RISK
We develop products in the United States and sell in North America, Asia and
Europe. As a result, our financial results could be affected by various factors,
including changes in foreign currency exchange rates or weak economic conditions
in foreign markets. Our foreign currency risks are mitigated principally by
contracting primarily in US dollars and maintaining only nominal foreign
currency cash balances. Working funds necessary to facilitate the short-term
operations of our subsidiaries are kept in local currencies in which they do
business, with excess funds transferred to our offices in the United States.
Approximately 9.6% and 8.8% of our sales were denominated in currencies other
than the U.S. dollar for the quarter and nine months as of September 30, 2000,
respectively as compared to 5.9% and 14.7% for the same periods as of
September 30, 1999.
EQUITY PRICE RISK
We do not own any equity investments. Therefore, we are not currently
exposed to any direct equity price risk.
IMPACT OF EUROPEAN MONETARY CONVERSION
We are aware of the issues associated with the changes in Europe resulting
from the formation of a European economic and monetary union, or EMU. One change
resulting from this union required EMU member states to irrevocably fix their
respective currencies to a new currency, the euro, as of January 1, 1999, at
which date the euro became a functional legal currency of these countries.
Through December 31, 2002, business in the EMU member states will be conducted
in both the existing national currencies, such as the French franc or the
Deutsche mark, and the euro. As a result, companies operating or conducting
business in EMU member states will need to ensure that their financial and other
software systems are capable of processing transactions and properly handling
these currencies, including the euro. We are still assessing the impact that
conversion to the euro will have on our internal systems, the sale of our
solutions and the European and global economies. We will take appropriate
corrective actions based on the results of our assessment. We have not yet
determined the cost related to addressing this issue although we do not expect
these costs to be significant.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we have been subjected to legal proceedings in the
ordinary course of business, although we are not currently involved in any
material legal proceedings.
ITEM 2: CHANGES IN SECURITIES AND USES OF PROCEEDS
(c) Changes in Securities
On September 5, 2000 we entered into a strategic relationship with IBM.
Pursuant to his relationship, Retek and IBM will jointly market, sell, and
service a comprehensive retail e-business solution consisting of Retek
applications and IBM software and hardware
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technologies. In connection with entering into this relationship, we issued
300,000 shares of our common stock to IBM in exchange for IBM entering into the
relationship and IBM providing to us IBM hardware and software for use by us
during the initial term of the relationship.
The offer and sale of such common stock was exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to section 4
(2) thereof. The Company relied on the following criteria to make such exemption
available: the fact that there was only one offeree, the size and manner of the
offering in the context of entering into a strategic business relationship and
obtaining the use of certain assets, the sophistication of the offeree and the
availability of material information.
(d) Use of Proceeds
On November 23, 1999, we completed the initial public offering of our common
stock. The managing underwriters in the offering were Credit Suisse First
Boston, Robertson Stephens and U.S. Bancorp Piper Jaffray. The shares of the
common stock sold in the offering were registered under the Securities Act of
1933, as amended, on a Registration Statement on Form S-1 (No. 333-86841). The
Securities and Exchange Commission declared the Registration Statement effective
on November 17, 1999.
The offering commenced on November 18, 1999 and terminated on November 23,
1999 after we had sold all of the 6,325,000 shares of common stock registered
under the Registration Statement (including 825,000 shares sold in connection
with the exercise of the underwriters' over-allotment option). The initial
public offering price was $15.00 per share for an aggregate initial public
offering of $94.875 million.
We have paid a total of $6.6 million in underwriting discounts and
commissions and approximately $3.6 million for costs and expenses related to the
offering. None of the costs and expenses related to the offering were paid
directly or indirectly to any of our directors, officers, general partners or
their associates, persons owning 10 percent or more of any class of our equity
securities or any of our affiliates.
After deducting the underwriting discounts and commissions and the offering
expenses, the estimated net proceeds to Retek from the offering were
approximately $84.7 million. A portion of the net offering proceeds have been
used for general corporate purposes, to provide working capital to develop
products, including our retail.com product offering, and to expand our
operations. A portion of the net offering proceeds were also used to pay $15.4
million in inter-company debt owed to HNC and $18.7 million was used in
connection with the acquisition of HighTouch Technologies, Inc. Funds that have
not been used have been invested in money market funds, certificate of deposits
and other investment grade securities. We also may use a portion of the net
proceeds to acquire or invest in businesses, technologies, products or services.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the third
quarter of 2000.
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ITEM 5: OTHER INFORMATION
On October 2, 2000, HNC Software Inc. announced it had completed its
separation of Retek Inc. from HNC through a distribution to HNC's stockholders
of HNC's entire holding of Retek shares, which consisted of 40 million shares of
common stock. HNC previously received a private letter ruling from the Internal
Revenue Service that HNC's pro rata distribution of its shares of Retek common
stock would be tax-free to HNC and its stockholders for U.S. federal income tax
purposes. After the close of the Nasdaq National market on September 29, 2000,
HNC stockholders who were stockholders of record as of September 15, 2000 were
distributed 1.243 shares of Retek common stock for each share of HNC stock held
as of the record date.
Effective August 6, 2000, Charles H. Gaylord resigned from our board of
directors.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
A current report on Form 8-K was filed with the Securities and Exchange
Commission by Retek on May 25, 2000 to report the consummation of our purchase
of HighTouch Technologies, Inc. An amendment to this current report on Form 8-K
was filed with the Securities and Exchange Commission by Retek on July 25, 2000
with the required financial information.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Retek Inc.
By: /s/ Gregory A. Effertz
-------------------------------------
Gregory A. Effertz Vice President,
Finance and Administration, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial and
Accounting Officer)
Date: November 14, 2000
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